Best Times to Trade

In our Trading Room there have been many questions fired at the regulars and myself over the years regarding trading in general whether it be trading forex, indices, or any other chart. Usually they are to do with the placing of stops or when to take profits, or finding suitable entries, but another which is high on the list is, "When are the best times to trade?"

It is not an easy question to answer as there are so many variables - currencies? - which pair? - which index? - which commodity? - where do you live? - do you work? - etc etc etc.

First off, let's consider a few of the important things that we'll need to take into account. 

When the market is flat it is good for neither man nor beast and being stuck in a trade that is going nowhere fast only serves to raise the blood pressure as you scream and shout at the screen pulling your hair out. The main thing then is that you will need some liquidity in the market you wish to trade so that it has a better chance of moving which subsequently should offer some trading opportunities.

The more people that trade your market then the better the chances are that it will move some. It follows then that the better times to trade is when the liquidity is higher, when there are more traders buying and selling. I simply check the volume of several candles if things start leveling off and if it drops below the 'norm' then it's time to take a break.

When liquidity falls off you will notice that the market flattens out and generally goes nowhere. Most moves will often be fairly small. The opportunities for good profits are diminished  with the chances of suffering a losing trade increased. It may even become choppy with the good chance of a whipsaw.

Fortunately, there are certain times of the trading day when your chosen market will present good trades with good liquidity, with one or two other pointers to help in our decision to stay out or look for a trade. We'll come to this in a moment.

No matter where you live on the planet, or which market you are trading, there comes a time when volatility plays a part and can change the whole outlook of your chart in a relatively short period of time.

The price candles (or whatever you use) start jumping and falling all over the place making it almost impossible to make a rational decision on where to enter a trade, never mind the correct direction. Large candles often accompany this volatility which is very nice if you happen to catch it but the risk is great.

It is on these occasions that it is most likely the better option just to sit back and watch what is going on and let the drama play itself out. Take a break for half an hour or so.  The chances of suffering a losing trade during high volatility are increased many times, but the beauty of trading is that there will always be another opportunity presenting itself just around the corner. So it is the trader who has the patience who will most likely profit from not trading those 'high volatility' times.

Take a break during the high impact news with the aim of preserving your account. A move of fifty or more pips in less than ten seconds is not unheard of. Don't be caught out.

The catalyst to that volatility is generally some news item or announcement which sets the cat among the pigeons, so it is the wise trader who is always aware of upcoming news and has some idea of worldwide events that may trigger volatility. Not all news is forecast, or in the Economic Calendars, eg, terrorist attacks, natural disasters etc. So trading without a stop loss is really a no-no. Please please get into the habit of using one every time. Markets can, and do, start motoring in any direction for no apparent reason. Best to be prepared.

So, we need liquidity but not necessarily volatility, and it would be the wise trader who is aware of the news and when it is due. On certain days there is very little news where the whole market in general tends to stagnate some, reduced movement if you like. Some say that without news then the market doesn't move. There may be some truth in that.

Whilst trading, and if you happen to be in our Black Dog Trading Room, then we will not let you forget that news is imminent. Remember, there is NO Holy Grail that covers all aspects of trading but master the skills one by one  to see your results improve. 

We have a series of five blog posts coming up soon entitled How to be a Successful Trader - please look out for them. They should help you enormously.

This is what the brokers shout from the rooftops - you can trade from late Sunday evenings to late Friday evenings non-stop (GMT times). You can trade 24 hours per day if you so wish, and that is exactly what the amateurs do without a second's thought for liquidity, volatility, or news often finding themselves stuck in a flat liner or stopped out because of volatility.

You NEED to pick and choose the best times to trade - and the times NOT to trade.

This brings us to the three main trading sessions:

Asian - European - North American

Most forex and other traders refer to these three sessions more casually as:

Tokyo - London - New York

because these three cities represent the main powerhouses or financial centres where the major banks do their business dealings. Thus many traders follow suit and trade at the same time as these institutions.

It must be remembered that these are not the only cities in the respective session so we had better drill down further so that we are aware of what is going on.

Tokyo session also includes Australia, New Zealand, China, Hong Kong, and many others whose scattered markets are considered to be open during these times.

London session opens just before Tokyo closes for the day but bear in mind that many other European countries are included in this session, in particular Frankfurt in Germany, France, Spain, Italy, and Switzerland, etc.

New York, NY, dominates most activity covering the American continent - Canada, Mexico, and South America. The times are unofficial but many factors come into play such as commodities, major news announcements, futures, etc which can expand the times from anywhere between noon and 9pm GMT, just to keep you on your tippy toes.

Unlike other financial markets, with forex there are no opening bells and no centralised exchange. The forex market opens when you arrive at your trading desk and pull up your charts. So the best time to trade is when there are many many other traders who are doing the same thing thus creating liquidity.

Some years ago I made for myself the little graphic shown below which I no longer use because those times are now etched into my brain. It shows a typical trading day from 8am until late into the evening. I live in Spain so ....

Please be aware that these are Madrid times.

Move the hours one to the right for London times. Feel free to make your own. I had this taped on a white board above my screen.

Let's just analyse that graphic a little.

The Hotdog Hour is the Frankfurt open leading up to the London open. I am almost always still in my sack during this time!

Things really start moving at the London Stock Exchange open whether you are trading Forex, Indices, or whatever, it will have an effect. Maybe it would be beneficial to trade a European pair or index during the London session? Likewise for the New York session, The EURUSD or GBPUSD pairs spring to mind which would be ok for both sessions? Worth thinking about.

I have marked two occasions where I need to be on my toes when news announcements are often made. But news can be a factor at just about any time during the day. Always wise to have your Economic Calendar open.

Get to know whatever you are trading, especially on the shorter time frames, does it lose some of that liquidity during the middle part of the day? Not as active? Many do but the New York Stock Exchange (NYSE) open usually takes care of that, so beware. There are often dramatic moves often backed up with a news announcement which could slice through your stops. 

I trade until 5:30 pm (my time) which is when London closes (and the Dax exchange too) and my broker decides to double his spreads. Just one more thing to be aware of.

I could move onto the Dow or NASDAQ and sometimes do, but usually by that time I have had enough. Time to give my square eyes a rest.

Using the graphic above, if someone were to put me on the spot asking what are the best times to trade, I would have to say from 9am til about 11:30am - take a break - then start up again from 2pm til about 6pm.

These are the times when most traders and the biggest banks are active. It is widely considered to be the most profitable time to trade. Though that may not help if you live in Australia, or NZ, Hong Kong, etc. so it would probably be wise to trade your local assets at the times that suit you the best. Unless of course you are a night owl..!! 

Now, 8 in the morning til possibly late in the afternoon adds up to many hours staring at the screen waiting for trade set ups and signals. Here at Black Dog we have alarms with our strategy which call our attention to any particular signal that we have set up for, and a trade may be imminent. These alarms are priceless, they really are.

But no amount of alarms will do you or your account any good if you are trading at the wrong times. Sometimes you will get lucky but it is always better to have a plan and stick to it.

Let me know what you think down below.

See you when the market opens ...

Dave